Bank Negara Malaysia’s new guidelines on responsible financing, which was announced on November 18 last year and became effective in January 1, 2012, hasn’t brought about desired results, it would seem.

The Malaysian Automotive Association has reported a 25% drop in new car sales for January 2012, attributing the cause partly to the restrictions on hire purchase brought about by the new guidelines.

Proton Edar Dealers Association Malaysia (PEDA) has issued a press release, in which it said that the BNM guideline is the second policy that has harmed the automotive industry after the amendments to the Hire Purchase Act last year.

It is calling for the guidelines to be reviewed – it said that the guidelines had severely damaged its sales, with only 30% of applications for loan submissions being approved in January. It is reported that the automotive industry is set to meet BNM tomorrow to seek a review of the guidelines.

PEDA added that the BNM guideline will not only curb and halt the automotive industry’s growth, but will affect vendors, distributors, dealers and sales advisors. It added that the income of more than 4,500 sales advisors in its dealer network has suffered as a result of lost commission earnings.

“The guidelines on responsible financing will only give rise to illegal loan sharks and promote (an) unproductive population,” PEDA president Armin Baniaz Pahamin said in the release.

The association said that when banks are more stringent, it provides a better opportunity for loan sharks to grow, adding that the loan shark industry was already at its prime even before the guideline was introduced. It added that the guidelines do not echo the government’s 10th Malaysia Plan and the government’s vision of the automotive industry, which is the most prominent sector after property.

Prior to the implementation of the guidelines, PEDA said that Proton, car manufacturers and assemblers were already having difficulty in attaining a good economies of scale due to the country’s small population. It said that the guidelines will further shrink its potential buyer’s demographic, and with a smaller market, the fate of more than 300,000 employees in direct and indirect employment within the automotive industry and its support sectors will be affected.

The association stated that it feared the repercussions and impact to the industry if the guideline isn’t reviewed. As it is, it said there are a lot of road bumps that will not only hinder the growth of the sector, but will stop the industry from moving forward, and the least that BNM can do is to encourage healthy competition among bankers to finance buyers and provide a standard procedure of compliance for the public to refer to when buying a car.

Updated footnote: In its release, PEDA explained the procedural requirements and elements needed for a vehicle hire purchase loan application. Initially, I thought it would be rather cumbersome to have placed it into the story, but so as to explain things clearly, I have now included it below, as fully described by PEDA.

Prior to the guideline, the industry was already affected with strict procedures for vehicle loan application. Application for Vehicle Hire Purchase Loan financing approval was previously based on:

With the above requirements, the average duration for approval took a minimum of 3-5 working days and the overall approval rate already stands at a critical 50% of total submission, with at least 25% of the loan was approved at a lower percentage (loan amount was reduced).

IMPACT ON THE BNM GUIDELINES IMPLEMENTATION:

Since January 1 2012, all banks interpreted the guidelines differently and practice different measures in approving vehicle loan application but the new Rule of Thumb especially for Proton car buyers includes all the six factors above and the following unwritten-terms:

1) Gross income of at least RM1,600 per month.

2) or Net income MUST BE RM800 or more. Net income meaning, gross income less EPF and any other loan exposure with banks.

3) Bank statement of at least six months (BNM GL: Para 6.11 and 6.12)

4) No discretionary approval; any applications that does not conform to the requirement are rejected without processing. Since the implementation of the guidelines, banks do not seem to have any flexibility in approving loans.

5) Customer has lost all sovereignty in exercising his/her right to apply for any car loan unless they comply to the Debt Service Ratio (DSR) of the BNM Guidelines. This directly impacts the majority of the national car buyer demographic.

6) A car buyer can only qualify to secure a loan if he/she passes the DSR that totals up all outstanding debts repayment obligations from banks and non-banks (eg cooperatives, building societies, credit companies, and merchants that provide credit sales) against its income after statutory deductions (ie. tax, EPF, SOCSO) (BNM GL Para 6.6)

7) 6 months proof of salary is required for applicants with high ‘variable income.’ Overtime includes overtime, allowances and commission.

Anthony Lim believes that nothing is better than a good smoke and a car with character, with good handling aspects being top of the prize heap. Having spent more than a decade and a half with an English tabloid daily never being able to grasp the meaning of brevity or being succinct, he wags his tail furiously at the idea of waffling - in greater detail - about cars and all their intrinsic peculiarities here.

“The association said that when banks are more stringent, it provides a better opportunity for loan sharks to grow, adding that the loan shark industry was already at its prime even before the guideline was introduced.”

What kind of excuse is this!? The banks are just pushing away irresponsible loaners, and distancing itself from defaults. If want do charity, please setup another fund to do it and with strict screenings only.

Actually, it’s not the banks distancing themselves. The banks would love to continue to rip-off poeple to buy overpriced cars. And with the thousands of thugs they hire, they can always recover their money.
It is BNM that is doing a great job in limiting this scam that is monopolized by banks and dealers who are fleecing Malaysians and burdening them with huge debts.

Go BNM!

And PEDA, if you want more people to buy domestic cars, revise your prices and stop relying on high prices and car taxes to protect you!!

i’m really really hope that BNM not even turn their head to PEDA request. BNM has responsibility to ensure rakyat not suffer for car loan whilst at the same time the rakyat to be more “responsible borrower”. PEDA has never consider all this thing and their numero uno principal is to generate as much as possible their profit. Did they ever think the borrower have to suffer up to 10 years car loan due to minimal loan requirement. Past time, you can see that sales agent/advisors is trying hard to ensure the car buyer to get loan eventhough they realize the buyer has no affordability to own car…and actually they make the buyer’s life miserable and at the same time they enjoy lucrative commission given by both banks and company.

So my question now, what the effort was done by PEDA to protect the buyer/borrower interest?

This is a real reflection of Malaysians’ real wealth! What does PEDA expect the market to grow only based on borrowings? This is so dangerous.

If approval rate is only 30% now, it simply means that this is how much disposable income Malaysians have. We’ve been made to believe that we are a wealthy nation with unlimited money. Well guess what, most Malaysians are struggling and living on debt. So I support BNM.

A real solution would be to scrap this stupid tax on cars so that it is then really affordable. Then more people can buy.

But for auto-makers in Malaysia to expect to live the easy life, overcharge customers, have them take loan for 9 years and burden their lives is NOT the way to go.
Keep doing your good job BNM and PROTON and Perodua, revise your prices and make it more affordable!

And to all people reading Paultan, while we are all car fanatics, we have to excercise caution: banks and car-makers in Malaysia have been fooling the customers making them believe they can buy whatever they want until BNM saw the disaster in making. Same thing goes for the government, they keep borrowing and borrowing until the day comes when… well, things go wrong and you know the end of the story: an economic catastrophe. So BNM is only doing its responsible job to limit this car loan scam…

I agree with you.Nowadays there are many new cars on the road especially those from the national car makers.Also some of these cars kena tarik by the bank due to defaulters.
It is sad to see these people declared bankrupt,some of them are quite young.
PEDA only cares about themselves,making more profit without giving thought whether these people are actually can afford new cars.
Why is it so difficult in buying 2nd hand cars?Finance company seems reluctant to give loans for used cars.Those low income group just cannot afford new cars but they are given difficulty when applying for loans on these used cars.Example used cars needs a guarantor but new cars not required (im referring to those with salary less than rm2k per month).
I don’t know..Something is very wrong with the system here and I can’t pinpoint exactly what it is..
Reduce tax perhaps?or our average income too low?
Something needs to be changed somehow.Make it a win-win situation for everyone,buyers,dealers, manufacturer etc..Now it seems it doesn’t favour the lower income group.

I really hate this government. Everything also want to control. Worst than communist!

They think they are helping but the effect is really opposite. Just like the high taxes on cigarrettes and alcohol. People just start buying contraband. Then the real companies lose out on sales and the workers get laid off.

i don’t care about cigs and alcohol.. they should’ve been taxed even more because Gov had to spend millions in RM to treat cancer patients and thousands of accidents due to drunk driving. kesian to those secondhand smokers also! Malaysia cigs is RM10 but SGD12 in singapore.. so Malaysia price should be RM25!
yes we all want tax-free cars. but you have to understand that those countries with lower car tax usually have higher income tax, petrol at market price, and don’t forget petrol tax too.

Our income tax is very very high compare to other countries in the world. Just compare to other developing countries.

And in fact, i would rather buy car without tax, and pay petrol without subsidy. We easily pay about rm30k to 40k for tax & excise duty for an entry level imported car, and i can use 30k to buy petrol for many many years at market price.

The father of Democracy; Greece is on life support. The biggest Democracy; India has a huge income disparity.

The fastest growing economy is the biggest Communist country. Was it Al Gore who said that you need to be a democratic country to grow?

Free Market is not Fair Market. Not fair to the 90% of the population. No way can small companies beat the giants of the business world and who themselves grew from their own market protectionism. What we still do need is

BNM is doing the right thing. Car prices should be cheaper instead. Oh, and float the fuel. Abolish road tax, fuel companies will pay the govt for roads and highway management. Increase speed limit by 20% too while you’re at it. Modern cars are safer now.

You know, that excise tax is tax on every car, including Proton and Perodua. Import tax is at 5% – 35%.. Sales tax at 10%. Proton and Perodua car price will be cheaper if excise tax is reduce or abolish.

Moral of the story are; if you can’t afford a new car, just use a second-hand car, a motorcycle, or maybe considering public transport. The stringent condition is good to eradicate NPL, and I think used car dealers have something to shout and joy on this news actually.

simple rule of thumb: if you considering it too much, that’s mean you can’t afford it.

this guideline is like a double-edged sword. one side will force the consumers to tighten their budget and spending wisely, and at the same time protecting the banks from non-performing loans. while the other side will hurt the industries, their workers and families….
BNM or banks should consider those who’re buying a car for first time, given that they’re already being confirmed in their employment, maybe after working for 6 months and above… for those who just want to ‘suka-suka’ changing cars everytime their salary increased even just a bit.. be strict to them, unless they really could affort it.
also be less strict for the first car in the family.. if father or mother already have cars, then be strict about their next car purchase.. too many youngsters driving to college and many of them died after drunk-driving at nite… maybe approve loan for only 50% of the car price for 2nd car onwards.
majority of buyers for perodua and proton are from low – mid income earners. but why the banks imposing 3-4% loan rates to them while those who buy higher end brands and luxury cars get to enjoy 1% rate? i understand that this is the ‘sub-prime’ factor due to higher-risk group, but if the rate can be lowered, it will reduce monthly installments and ‘easier’ for the borrowers to repay their loans. entending the loan tenures is not the best solution, it will only increase the amount of interest payable. the easiest way, and if the gov is sincere about helping the lower income group is to lower the excise duty on cars from 75% now to 50%. the big drop in price will solve this problem.

kau yang bodoh… Kia and Hyundai is not from Asean. Kia & Hyundai doesn’t have factory in Asean region, unlike Honda & Toyota which have facories in Thai, Malaysia and Indonesia. if they import straight from Korea, they will have to pay more because of import tax!
now, who simply bantai?

ajd, we were sent the release by PEDA, and there was a story in there, so we ran it. I’m sure not only P1 and P2 are reeling from the new terms in effect, but they would stand to be the hardest hit by it.

I vote for free market. Healthy and fair competition is the way to go. It is because of gov’t protection that Proton is shit right now. They got lazy in the R&D and come out with crap cars that won’t sell.

Barking up the wrong tree… If sales has declined dont blame BNM….
Blame the tax structure and automotive policy……
How long we malaysian going to pay for ridiculously priced cars.
By giving longer loan is not helping the consumer but only benefit others
And citing 300,000 ppl work in the auto industry is lame excuse…
What we are suppose to feed them by taking loans and paying crazy taxes.

Those 300,000 still can have a job by changing the tax structure….
If we want to make a stand…stop buying new cars and show who is the boss..
Simple as that.
End of the day those 300,000 ppl will lobby and the higher authority will have to
do something about it…
But asking the rakyat to take longer loans and pay high taxed is plain wrong…
And forcing the banks to give out loan that cannot be collected is even worse.

Just to add some salt to the wound…. Back in 1981 I have Asian Auto Magazine to prove it.

Corolla cost = 14K
Today 104K..
What manufacturing cost has gone up so much..
Inflation is gone up so much…

In the US back in 1981
Corolla cost = 7K
Today 15K
How do you explain this????…
Remember higher the price of cars …..higher is the tax….
So as cars got more expensive ppl cannot afford…so the master plan was
give long loans….and everyone is a winner…
Unfortunately the prices has risen so high and loan amount outstanding also
risen and banks are finding it tough to collect back…
Alarm bell is ring….that there is something wrong with the system….

betol betol betol. U PEDA, ask Najib and Rosmah to feed u la. NFC can got RM250M, u can ask for RM250bil. PEDA, we are not interested to your products, and we don’t care whether we can get financing or not. PEDA useless

We cannot continue to grow our household debts without increasing earnings. When an economy is only growing 5% how can it sustain when private cars sold grow 10%? Reducing our exposure to debts would increase our ability to spend on things that do cost more such as food. Food is going to be expensive as our source of food is mostly imported.

Previously, processing for car loans was based on a buyer’s gross income, but since January, the BNM has directed banks to base loan approvals on net income, meaning after deduct all your other commitments.

If a person can’t get the loan approved, that means the person will not be able to afford maintaining the car. Buying car is not just about zero downpayment and low installment with lifetime payment. 5-year repayment period should be the maximum, unlike house where 20-year is normal. Once a person owns a car, need to put aside money for petrol (subsidized, not the real price), tolls, scheduled maintenance, unexpected failures/repairs, road tax, insurance, etc. Without money, there’s no way a car can be properly maintained. Without proper maintenance, the vehicle becomes safety hazard to all.

I always see Proton’s and Perodua’s promotion of zero downpayment for graduates. To me, it does not make sense at all. Why put all the risk to the bank? 20-30% downpayment should be paid when someone buys a car. BNM is doing the right thing.

Don’t we have too many cars on the road in Malaysia already? Maybe JPJ should start asking question when someone tries to register a brand new vehicle, where it is going to be parked?

Excellent reply! Most of us conveniently forget that paying back the loan is just one side of the coin. The other side is just as Thrifty explained…Total Cost of Ownership, so as to speak.

And yes, I agree with your suggestion for JPJ to consider parking space as a requirement to own a car. Getting sick and tired of folks in my neighborhood parking their car 3rd, 4th or 5th car where ever they find space…including right in front of your own gate!

I am all for the new BNM new rulling, with the ever increase property price, no thank to our speculator + developer + banker (aka the evil trio), world longest car loan (9 years) the average household debt of Bolehland is 78% against GDP (second highest in Asia after South Korea), to make the situation worst this selfish Developer & Car Dealer are pushing the government to relax the new rulling.

We have seen what happen to US & Europe result of high household dept, i hope BNM will not backoff on this, for the sake of the nation future.

Back in the days, we bought a cheap used car in cash until we found our legs. That system works. Getting young ins deep into debt is disaster in the making.

Car prices here are artificially jacked up. With easy loans, even with reduction of duties, car prices remain rather inelastic and would hold its market position as consumers are used to it.

It takes a monetary system shock like this to show consumers that cars are indeed still insanely expensive and the lack of easy loans brings this to light that many Malaysians simply cannot afford to own a NEW CAR!

Good move by BNM. It is even better if the ruling is more stringent such as max 5 years loan tenure, min 30% dp and the min nett income of RM2500. Let the pax car market to shrink by 75% because this is the reality, that is maybe only 25% of working adults can actually afford to obtain loan to buy car. It’s not the financial system that killing the industry, it is the government policy. How much longer the financial system and the people can bear this unrealistic and over inflated prices. One day this bubble will burst and we will end up like Greece, Spain and so on.

I think it is HIGH TIME for us to organize “STOP BUYING NEW CAR” campaign to save us and our future generation from mountain of debts. Lets show them the real power, that is the people’s power. Common guys, lets organize something, through FB, Twitter, Blog ans so on. Lets make the new car volume sales to shrink by 10% this year and 20% next year until the government change the policy to open market policy.

I demand government invests more in improving public transportation in the country as a trade off for more stringent car ownership rules! It is now time that our urban planning prioritise public transport, pedestrians and cyclists.

Suddenly a lot of people here points out the elephant in the room, the ridiculously high artificially jacked up car prices. Bank Negara has taken the first step to give this affordability issue more attention from the public, and a very strategic maneuver indeed.

i agree if someone outhere willing to promote movement that refrain public from buying new cars. why bother buying new cars when in reality you can’t afford it… we have been burden by expensive car price for so long now and there is no clue or whatsoever from the government to change this bloodsucking tax structure. GE come and go but still the vehicle tax structure remain and i bet even under PR federal government there will be no changes to this practice. so why not create a silent movement for people to stop buying new cars. if there is significant drop in car sales this year say 10% to 15% and next year 20% to 50% i bet that the government will review the tax structure sooner or later.

BNM is doing its job, we already have a Malaysian version of sub prime in the making. Take a look at the car dealers that are touting loans for black listed borrowers, I am not sure who provide these loans, but people are buying a depreciating assets (car) that they can’t afford. As I see it, the problem is two fold, stagnant real income and over inflated car prices. Young Malaysians are generally brain washed into thinking that cars are an extension of their personality or “face”, so they must have “presentable” cars (read new) even if it means taking up 9 years loan that will leave them mired in financial mud hole. Keep you old car, maintain it well and keep out of debt.

I think the gov and JPJ should come out with quota system to control the population of cars on the road. Let say 2000 quotas will be provided for each type of vehicle. eg. car, motorcycle, lorry, etc.. In order to eligible the quota, the gov must impose some rules to car buyer.

1. Only car buyer whom make a downpayment 30% or until are eligible to receive the quota.

2. Paid by cash is recommended..

3. The car owners are limited to owned two cars under his/her name. Otherwise, higher surcharge will be borne by his self.

2) Prompted the big G to revise the NAP, to make car prices cheaper and more affordable to the masses by reflecting their true prices.

Thanks to the caring BNM, the car makers and car dealers doesn’t even care if more people got bankrupt, they just have to make sure high sales figures as it is their purpose for being in the car industry.

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